Action Aid urges reform to global financial architecture
Action Aid has called for a reform of the global financial architecture amid concerns that the existing conditionality imposed by global financial institutions are locking developing economies in unsustainable debt.
In its new report released last week titled Fifty Years of Failure: The IMF, Debt and Austerity in Africa, Action Aid says the International Monetary Fund (IMF) and the World Bank have “imposed a neo-colonial model of economic development based on exploitation and extraction from the Global South”.
Reads the report in part: “These crises have then been used to justify the imposition of harsh loan conditions and coercive policy advice on African governments, perpetuating dependency and stripping away the capacity of States through cuts to public spending.”
Action Aid singled out for criticism the IMF’s insistence on using tight monetary policy to tame inflation and cuts on public expenditure to contain fiscal deficits amid concerns that they undermine efforts to catalyse much-needed economic growth and improve public service delivery.
Reserve Bank of Malawi has raised the policy rate three times, from 12 percent last year to 24 percent this year to complement efforts to bring down inflation.
Announcing the Extended Credit Facility (ECF)programme last month, deputy division chief in the African department of the IMF Mika Saito said monetary policy “will remain anchored on containing money growth”.
This suggests that the policy rate will be raised further, considering that it is still lower than the inflation rate.
The government further agreed to introduce taxes on rental incomes and introduced value-added tax on financial services as part of its fiscal consolidation drive while they pushed for an programme with the fund.
Reacting to the developments, independent economics researcher and consultant Exley Silumbu said the IMF austerity are arbitrary and unfair, but they stressed that the conditionality is a way to instill fiscal discipline.
He said: “The IMF, like any lender, has to assess the capacity of any borrower to repay back those loans. It ensures that the government is borrowing within its capacity to service the loans with existing resources.”
On managing the fiscal deficit, Malawi University of Business and Applied Sciences economics professor Betchani Tchereni agreed with Silumbu, saying the government should always strive to cut the consumption budget and prioritise on financing production activities.
The IMF is a lender of last resort and usually steps in to help countries when they are already in debt distress or at risk of debt distress.
